The Concept of Opportunity Cost
The Concept of Opportunity Cost
Efficient management of resources is essential in maximizing production output for individuals, firms, governments, and countries. In economics, this is best seen through the concept of opportunity cost and use of comparative advantages to weigh the pros and cons of a trade or business. This is visually represented by a production possibility curve, which focuses on two or more goods to best explain the concept of opportunity cost. If values do not match those on the production possibility curve, then there are existent inefficiencies. This has a direct implication to the institution or economy in study as it has lower production levels.
Based on empirical evidence, there will be zero units of education produced and maximum units of health. Allocation of all the resources to only one sector means that there will be a maximum output in that sector. This occurs at the expense of another sector. These resources can only be useful if they are used for production. Mismanagement of the resources means that production will be present, but may not achieve optimal levels. Conversely, the same theory holds if all the resources were allocated to education and none of them allocated to healthcare. There would be no growth seen in the number of healthcare units. The number of education units will grow until its maximum output is attained.
From the production possibility curve, production of 11 units of health and producing 16 units of education is the optimal output level of the system. Given the current set of inputs, these are the maximum units produced for each of the sectors. Increase in education units leads to the decrease of the healthcare units and vice versa. There is an opportunity cost repercussion in the increase of education units. Empirical evidence shows that an increase of 5 education units will significantly reduce health care units by 4 units. This combination means that there is a decrease in the economy as the output moves down the production possibility curve. Here, the concept of opportunity cost, the essential ration used in decision-making, is used (Jain and Khanna 173). Healthcare units were sacrificed in order to address the need of education in the system.
In this scenario, more value is associated with education, as opposed to healthcare, therefore, there has to be a trade-off. Scarcity is the limiting of resources, which results in making a concessive decision from the available alternatives (Hall and Liberman 3). Comparative advantage is used when trying to improve the current situation when given several options. Marginal analysis is performed to evaluate the benefits in relation to the cost being incurred (Pindyck and Ruinfield 87). This means that minimal input of activity is meant to yield a substantial output. Over time, the marginal benefits reduce, as there is increased productivity. Therefore, marginal benefits are most successful over a short duration of time as prolonging it decreases its net benefits.
Decision-making is very critical in determining which resources are available and where they are allocated. Critical thinking comes to play in such instances. Independent and rational reasoning is used to come up with decisions. Critical thinking is very logical as it eliminates the emotional involvement in decision-making and may be governed by certain values. St. Leo’s values are some of the values that can be used in this process. The core values are based on an effective yet practical model. This model is based on the moral cognitive state. It appeals to showing honesty and integrity and valuing of all people.
The core values of this model are integrity, Responsible stewardship, personal development, community consideration and excellence. These values should be used to make decisions as they accommodate everyone irrespective of their being a marginalized minority group. Community is the value of oneness. It united people under the umbrella of equality. Since human beings are social beings, interdependence is necessary, and it is based on trust. It is from trust that when the opportunity cost decision is being made that leadership considers everyone.
Respect is a key aspect to critical thinking. It outlines how people regard themselves in a community irrespective of their age groups. Respect builds confidence in the leadership as it takes into account all involved parties. This way the inherent abilities and strengths of people are brought out. This will result in economic growth, as people will be prompted to cause technological change when the opportunity cost decision is made. This leads to the increased production thus economic growth.
Responsible stewardship is the entrusting of something to someone who will treat it with respect. This is linked to respect as it ensures that the management of the property bestowed on ones shoulders will be handled well. This value takes into account the spiritual nature as it humans were given stewardship over the world. In this way, stewardship is seen when resources are properly managed, therefore, maximizing production output. Integrity is what is expected most of the values when taking to account responsible stewardship. Excellence describes the nature of pursuing nothing but the very best. This is done through learning and its aim it to ensure continuity of high standards. Integrity comes in as we are meant to deliver the promise of upholding the high levels that come with excellence.
In conclusion, these core values would best govern the critical thinking process. This will ensure proper management of resources and optimizing output even when opportunity cost decisions are made.
Hall, Robert E, and Marc Lieberman. Microeconomics: Principles and Applications. Cincinnati, Ohio: South-Western College Pub, 2001. Print.
Jain T, and Khanna O. Buisness Economics. New Delhi: India Pub, 2005. Print.
Pindyck, Robert S, and Daniel L. Rubinfeld. Microeconomics. Upper Saddle River, N.J: Pearson Prentice Hall, 2005. Print.
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